“As a society we are in a phase of transition, and there are a number of megatrends that will influence the real estate investment sector in the near future, including seismic shifts in geopolitics, demographics and technology. As part of our responsible property investment programme we focus our attention on issues most material to the real estate sector and analysing whether markets are pricing sustainability risk accurately, including externalities, in their measurement of real estate values and worth.”
At Hermes, we have long recognised that responsible investment practices are changing real estate market conditions. Regulatory drivers and growing market demand indicate that sustainable portfolio and building characteristics affect real estate investment’s fundamentals: it creates reduced risk of obsolescence and depreciation, enhances tenant retention, reduces void periods and lowers operating costs. For real estate this means that as well as achieving a nominal financial return we also seek to deliver and manage sustainable cities, communities and buildings which have positive social impact through education and job opportunities and energy efficiency and low carbon buildings.
In the last year the focus of our responsible property engagement programme has been on the role of real estate in achieving a transition to a low carbon economy, and in particular the role it can play in scaling up finance for energy efficiency. Real estate also has an important role in helping to meet the UN’s sustainable development goals, and we strongly believe that developing and disseminating positive impact finance approaches will be an important delivery mechanism. These themes also represent major opportunities to deliver long term returns and expand our real estate market shares.
We are working with the industry through the UNEP FI positive impact working group, developing common definitions and frameworks, and assessment methodologies and impact measurement indicators. In particular we are working on a framework for real estate investments. In our view a typical Positive Impact Framework for real estate would follow these key steps, see Figure below:
Responsible Property Investment in Practice
We see environmental, social and governance (ESG) risks as business critical to our funds and are committed to embedding responsible investment principles across our investment practices. We integrate responsibility principles across our investment and asset management processes, including: investment, development, property management, and occupier and community engagement. We continue to work with the real estate industry to develop tools and methods to that effect.
The above diagram is from our report, 'Responsibility in practice: Integrating responsible property investment – RPI report 2015.
Leadership and market transformation
We are active contributors in public policy and sector engagement through a broad advocacy agenda directed towards promoting responsible investment and ownership practices, and more pertinently advocating for a global financial system that operates in the interests of its ultimate beneficiaries.
- Better Building Partnership
- Building Performance Institute Europe
- British Property Federation
- Institutional Investors Group on Climate Change
- Global Real Estate Sustainability Benchmark
- Portfolio Decarbonisation Coalition
- Principles for Responsible Investment
- Royal Institution of Chartered Surveyors
- UNEP Finance Initiative
Relevant sector publications
G20 Energy Efficiency Investment Toolkit IPEEC et al, June 2017
Real Estate Climate Risk Report 2017 Willis Tower Watson, April 2017
An Investable UK Emissions Reduction Plan IIGCC, March 2017
Transforming the sustainability of Europe’s building stock IIGCC September 2016
Sustainable Real Estate Investment -Implementing the Paris Climate Agreement: An Action Framework UNEP FI et al, February 2016